Managing your company’s cash flow can feel like walking on a tightrope whilst holding a drill in one hand, a beer in the other, a spare tyre on one foot and a ladder on your head. Oh yeah, and the tightrope is on fire.
Staying on top of cash flow, as you know, is a balancing act to say the least.
There certainly isn’t a quick fix for such a general topic.
However, there are several solid building blocks that we believe will assist you in navigating the financial challenges within the construction industry.
1. Enforce Invoicing and Payment Deadlines
Submit accurate invoices promptly and implement a follow-up process for timely payment collection. Consider incentivising early payments and penalties for late payments and incorporating an automated accounting software such as Xero.
2. Implement Favorable Payment Terms
Aim for payment terms that align with your cash flow needs, such as partial upfront or progress payments tied to project milestones.
3. Implement an Accurate Payment Plan
Develop a detailed financial plan with cost projections, revenue forecasts, and a contingency fund to identify potential cash flow gaps in advance. Xero’s “Budgeting and Forecasting” tool is very useful for this.
4. Simplify Supplies and Prioritise Supplier Management
Minimise excess inventory by accurately forecasting material requirements. Cultivate relationships with reliable suppliers offering favourable payment terms and negotiate early payment discounts (such as a 2% discount if a payment is made within 10 days of invoice issuance, or supplying a discount based on the volume or quantity of materials purchased).
5. Cut Costs and Keep the Quality
Regularly review and analyse expenses to identify areas for cost reduction without compromising quality. Scrutinise overhead costs, renegotiate contracts with vendors, and explore alternative suppliers. Ask yourself questions like; Do we need an office space this size? Is there a digital project management software we could implement to save time spent on paperwork? Is there a supplier that offers comparable construction materials at a lower price with the same quality?
6. Secure Financing Options
Establish relationships with financial institutions specialising in construction industry financing (we’d recommend speaking with Incra Group 😉). Explore options like lines of credit, equipment leasing, and factoring services for cash flow support during low activity or project delays.
Remember to maintain accurate planning, monitor expenses, and proactively manage cash flow to stay on the offence within the construction industry.
Don’t tackle this beast alone, we’re here to help.
Click the button below to take a free assessment to see where you're standing financially, and how you can bulletproof your company's financials moving forward.
Please note: The financial advice provided in this blog post is intended for general informational purposes only. While the tips and recommendations outlined here are based on best practices and general principles, they may not be applicable or suitable for every construction company's specific financial circumstances. It is important to note that the information provided does not constitute professional financial advice, and we strongly recommend consulting with a qualified financial advisor or accountant before making any financial decisions.